Advertisement

  • News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
BW Businessworld

Why Buyers Are Still Shy

The market, however, is now driven by end-users, for whom property appreciation is not the main criteria

Photo Credit :

1502266242_s9v35K_Housing2_RS.jpg

Despite depressed property prices, lowering of home loan rates and a plethora of good deals being available in the market, prospective home buyers are yet to take the plunge in investing in property. The reasons for the prevailing pessimism are many.

Demonetisation and the squeeze in paper currency hit investments in property. The government’s efforts at job creation, have not had the desired results in improving employability. The unstable job market, job losses, slow hiring and stagnant or low salary hikes, have adversely impacted the demand for residential property, especially at the IT hubs.

Today home buyers are in a dilemma over whether or not to buy or rent property. Even though real estate is still considered a good asset class to own, the return on investment (ROI) on property is a major concern.

As such, the ratio of price of property to rent, is a major determining factor. A ratio of more than 15 is considered suitable for buying a home.  At present, it makes business sense to rent a house as rental returns have dropped from four per cent to two per cent over a decade. 

Today, an equated monthly installment (EMI) is about twice the rent that one pays for residential property. Moreover, due to delivery delays, one has to bear the double burden of an EMI and house rent.

 The tardy home loan rate cut transmission has disappointed home buyers. Before 2015, home loan rates were in double digits. Over the past two years, interest rates on home loans have consistently fallen, the cumulative interest rate cut effected by the Reserve Bank of India (RBI) amounting to two per cent. What really matters to home buyers, though, is whether banks are passing on the interest rate cut to them.

It is pertinent to mention that in the last two years, only about 1.25 per cent to 1.50 per cent of the two per cent rate cut effected by the RBI, has been passed on to customers. Even the Marginal Cost of Funds Based Lending Rate (MCLR) introduced by the RBI for speedier transmission of rate cuts to consumers, has not proved too effective.

The biggest concern of home buyers today is the safety of their investment. Good appreciation of property prices is a bleak prospect with prices falling or stagnating in most parts of the country over the last two to three years.

The market, however, is now driven by end-users, for whom property appreciation is not the main criteria. The uppermost criteria for buying residential property now, is security of investment. Of late, prospective home buyers have dragged their feet about investing in residential property because of large-scale delivery defaults.

According to an Assocham study, as many as 839 housing projects are behind schedule by an average of 39 months. Buyers are consequently wary of investing in under-construction homes as they do not want to risk their investment being stuck, as was the case with home buyers in Noida.

The Real Estate (Regulation and Development) Act 2016 (RERA) has not been able to win the confidence of home buyers, particularly because of the inability of some states to notify the Act. Even states that have notified the Act, have not framed the rules. A large number of projects still remain unregistered under RERA. Some states have even gone to the extent of diluting the provisions of RERA to keep contentious under-construction projects out of its purview, resulting in protests and legal action by home buyers.

And all of this has cast a shadow over home sales in the upcoming festive season. 


Tags assigned to this article:
magazine 1 oct 2017 reserve bank of india RERA MCLR
sentifi.com

Top themes and market attention on: